European Council (Dublin)

With permission, Mr. Speaker, I shall make a statement on the informal meeting of the European Council in Dublin on 28 April, which I attended with my right hon. Friend the Foreign Secretary. The text of the Council's conclusions has been placed in the Library of the House.

The Council was convened for two main purposes: to consider the consequences for the European Community of German unification; and to discuss the way ahead in the Community's relations with eastern Europe. We made useful progress on both issues.

The Council agreed clear guidelines for the detailed discussions which will be necessary in order to incorporate East Germany into the Community, taking account of the interests of other member states. Those discussions will cover trade, agriculture, fisheries, the environment and many other issues. It will be for the Commission to make proposals for any transitional arrangements which are necessary. I emphasised that derogations from Community law and practice should be brief; and that we must avoid unfair competition and disruption to trade. Those points are well understood by the Federal German Government.

In the period before unification, East Germany will have access to normal Community funds which have been set up to help eastern Europe: and will also be able to benefit from full access to the European investment bank. Chancellor Kohl indicated that the federal republic is not seeking any special fund for Community financial assistance to East Germany.

A very welcome feature of the discussion on German unification was the strong support expressed by Heads of Government for the North Atlantic Treaty Organisation and for the view that a United Germany should be a member of NATO. That corresponds very much with our own views and those of the United States.

As regards eastern Europe, the Council reached two main conclusions: first, that assistance from the Organisation for Economic Co-operation and Development group of 24 countries ought to be extended to East Germany, Czechoslovakia, Yugoslavia, Bulgaria and Romania, as well as to Poland and Hungary as at present; and, second, that, as soon as possible, we should negotiate association agreements between the European Community and those eastern European countries which are making decisive progress to market economies and genuine democracy. That responds to a British initiative before the Strasbourg European Council last December and we very much welcome the decision.

The Council also provided an opportunity to take forward discussion on other items of European Community business, in particular political union. That has never been defined: and it was clear from our discussion that there are widely differing views on what it covers. I pointed out that the term political union raises anxieties among many people about a loss of national identity, national sovereignty and national institutions. I suggested that we should all make clear that political union does not mean, for example, giving up our separate Heads of State, or our national Parliaments, or our legal or electoral systems, or our defence through NATO.

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I also proposed that we indicate that we do not intend to alter the role of the Council of Ministers as the Community's main decision-making body, with Ministers each accountable to their national Parliaments; and that we are opposed to centralising powers in Europe when decisions are better taken by national Parliaments and Governments. If we could agree that none of those things would happen as a result of political union, we could show that many of the fears about it were groundless.

I suggested that the positive way forward lay instead through ever closer co-operation among member states and reform of the Community's existing institutions to make them more effective and more efficient. We shall ourselves have constructive ideas to put forward for that.

I found a number of these views shared by other Heads of Government. Indeed our discussions during the day, particularly on matters concerned with foreign affairs and defence, showed very clearly that in practice we all continue to think in terms of keeping certain key issues as matters for national decision.

We therefore agreed to instruct our Foreign Ministers to analyse more thoroughly what political union should cover and report back to the European Council at the end of June, with a view to a decision then on the holding of an intergovernmental conference. Such a conference can, of course, be convened by a simple majority of member states, but its decisions have to be reached by unanimity and approved by national Parliaments.

I will summarise briefly the other main issues that we discussed. First, the Council confirmed the commitment to complete the European single market by 1992.

Second, we agreed to intensify preparations for the intergovernmental conference on economic and monetary union, which will start in December this year. We also set an objective of finishing the work of that conference in time to permit ratification of the results by the end of 1992. It is rather early to say at this stage how feasible such a target is. The results of that conference would have to come before the House, which has already expressed its views on stages 2 and 3 of the Delors plan.

Third, we confirmed our commitment to a successful conclusion to the Uruguay round of trade negotiations in the GATT.

Fourth, we repeated our desire to strengthen relations with the EFTA nations and extend the single market to them.

Fifth, we asked our officials to make proposals, in time for the next European Council, for improving the effectiveness of the Community's co-operation against drug trafficking and drug abuse.

Foreign Ministers also discussed a number of international issues. They agreed a statement on Cyprus, as well as guidelines for our approach to the CSCE summit, which we expect will be held later this year. Those texts are annexed to the Council's conclusions.

The additional meeting of the European Council set the way ahead for the Community on several important issues. It was also an opportunity to put clearly on record Britain's views on what political union should and should not mean, and not least our determination to defend the powers of this House.

I thank the Prime Minister for that statement. I welcome several aspects of the Dublin communique agreed by the Heads of Governments, in particular the improved co-ordination of action against
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drug trafficking, the statement on Cyprus—which will have resonance for many hon. Members—the new arrangements for dialogue with the United States of America, and the undertakings given by the German Government on the process of unification.

While we welcome the Council's conclusion relating to support for the economies of eastern Europe, and want that to be extended, will the Prime Minister give an undertaking that any commitment by Britain in that direction will not result in a reduction in the resources that we allocate to Third world countries, whose needs remain as great as ever?

I wish to raise two issues relating to the Community. First, has the Prime Minister made any progress in efforts to locate the European Bank for Reconstruction and Development in London, which is where it should be located? Secondly, in the light of the Chancellor's prediction yesterday on the rate of inflation, can the right hon. Lady update the House on the timing of Britain's entry into the exchange rate mechanism of the European monetary system?

The Dublin summit obviously reflected the process of events immediately before it. Was the Prime Minister personally consulted by Chancellor Kohl or President Mitterrand before they sent their letter to Lithuania last week? If so, why was not Britain associated with that constructive initiative? Was she personally consulted by either Chancellor Kohl or President Mitterrand before their letter of 19 April to the Community Heads of Government, setting out their proposals to convene an intergovernmental conference on European political union?

Has it occurred to the Prime Minister that, when Chancellor Kohl and President Mitterrand are taking important and significant initiatives and Britain is not directly involved, it is because the right hon. Lady has put our country on the sidelines and left others to determine the course and the nature of the new Europe?

We are just six weeks away from a Community summit which, contrary to the Prime Minister's professed wishes, will now consider proposals for an intergovernmental conference on political union. Is not it obvious that the Prime Minister has no positive strategy for that summit? Do not those events make it crystal clear that, because of the way in which the Prime Minister has conducted affairs, she has been pushed to the fringes from which she can exercise only marginal influence on events? Is not it plain that the Prime Minister has made herself merely a spectator, the lame duck of the Community, and she has only herself to blame?

I shall go through the points which the right hon. Gentleman has made. Help for the economies of eastern Europe should not diminish help for the Third world. That is very much in the minds of all our colleagues and we do not intend that it should diminish help for the Third world. Help for eastern Europe has been provided out of a special fund.

With regard to the new European bank, we have applied to have it in London. Of course, it is not a Community bank; it is much wider than that, so we have also been in touch with the United States and others who will contribute to it. Many people feel that it should be in London. There is also a battle going on, if I might refer to
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it in that way, about who should be president or governor of that bank. I suspect that the two issues will be settled together.

With regard to inflation, I have nothing to add to the Madrid conclusions about when we shall join the exchange rate mechanism. As the right hon. Gentleman knows, some countries have yet to have full freedom of capital movement and to remove their foreign exchange controls. It is expected that Italy will do that before the beginning of July. There is still not full freedom of financial movement, but the main thing is to get inflation down now before we can join the exchange rate mechanism.

The statement on Lithuania issued by Chancellor Kohl and President Mitterrand was done at one of their bilateral meetings. May I point out that, when all the Foreign Ministers met the week before, they jointly issued a communiqué on our approach to Lithuania under the terms of the political co-operation treaty which requires us all to consult one another before we make statements, if possible, so the Foreign Ministers have made a joint statement.

Chancellor Kohl and President Mitterrand did not consult others before they issued their statement, although it was inside the political co-operation treaty that they should have done so. I am not surprised or disappointed that they did not. The fact that we agree on political co-operation does not mean that we relinquish our sovereign right, unilaterally or bilaterally, to make our own statements. I thought that it was rather on my side that they were giving practical evidence that they did not intend to give up their sovereignty unilaterally or bilaterally, although they were talking about political union without any definition whatsoever. The document that they put before the Council on political union talked a great deal about political union without defining it. Certainly in the first stage they meant increasing the efficiency of Community institutions and increased political, economic and monetary union. It is difficult to define political union by reference to other unions by repetition of the word. They also meant increasing co-operation on security matters, but, of course, one has to remember that each of the nations of the Community takes a very different view. Many of us are fully under NATO; some are not militarily integrated into NATO and some are neutral. So it did not seem a very good example of political union.

On the right hon. Gentleman's final point, may I remind him that Britain was one of the principal political players in that informal session. Many people supported what I said and we got our own way in asking Foreign Ministers to analyse what was meant by political union.

Does my right hon. Friend agree that that she was absolutely right at Dublin to seek a clearer definition of European political union? Does she accept that there is, indeed, a strong case for political progress and development in Europe but that it should be constitutionally based on strengthening the role of national parliaments and not on bureaucratic centralism or simply increasing the power of central institutions without proper accountability? Does she agree that that is an excellent case which can be put well by the British, that she has made an excellent start in putting it, and that she should continue to do so with great vigour?

I am grateful to my right hon. Friend. I agree wholeheartedly with him. There has been a tendency to increase the central powers of the Commission. That is going the wrong way. The Commission needs some increase in powers in one respect—a quasi judicial respect—it needs powers to enforce some of the directives. In other respects we need a greater distribution of powers for decisions. Those should be taken through the national Parliaments and the Council of Ministers. We have particular proposals to put forward about strengthening the Court of Auditors. The Commission's accountability on finance could be greatly improved.

Following our exchanges in the House last Thursday, is the Prime Minister aware that her strong, clear statements in defence of parliamentary sovereignty accurately reflect the views of people not only in Northern Ireland but throughout the United Kingdom?

I am grateful to the right hon. Gentleman. I believe that it reflects our views. We are by far the oldest Parliament and we probably report far more often to our Parliament about everything that goes on in the Community than do many other Heads of Government. The fact that at the outset other Heads of Government were not prepared to put any limitation on political union was alarming, but it could mean that they go step by step towards relinquishing the things which are absolutely vital to our parliamentary traditions.

Does my right hon. Friend agree that, far from being isolationist or lacking in influence in Europe, the outcome of the Dublin summit proves that we are leading Europe from within and, furthermore, we are doing so on the basis of our insistence on real parliamentary democracy and asking simple questions of those in authority?

I agree with my hon. Friend. It is absolutely wrong that people should use phrases without defining them. It is our task as Heads of Government to define them and set strict limits on them. I could not possibly come back to the House without doing precisely that. It took a good deal to do that at the informal summit, but it is now being done. In precisely the same way, and by being isolated at first but obtaining a reasonable settlement, we obtained a rebate of £1.7 billion this year. If we had not taken that path at previous summits, we should be paying £1.7 billion more to the Community than we pay now.

Is the Prime Minister aware that many people in all parties throughout Britain do not necessarily believe that it is in Britain's interest that she gets her own way? Is the right hon. Lady aware that many people feel that here attitude in Dublin was negative and insular? Does she accept that many people believe that the development of a federal Europe, far from being a threat, is the best protection of our pride, realistic sovereignty and economic well-being? As for our electoral system, the sooner that we get rid of that wretched and unfair system, the better.

It is not my way that one achieves. It is the way that the Government feel is best for Britain. The Government have done well for Britain in finance,
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agriculture, trade, competition and so on. In particular, we have obtained a realistic budget and seeing that we had a realistic contribution to make. I noted what the hon. Gentleman said. Clearly he does not mind losing little by little, or even faster, the powers of the House to a federal Europe. I disagree with him. We should stop any more centralisation and make certain that the future of the Community is implementation of measures through the national Parliaments.

As the President of the European Commission has made it clear that he envisages European political union in a structure in which the majority of decisions that affect the people of this nation will be taken in Brussels, and as Chancellor Kohl made it clear at Dublin after the summit that he saw increasing power being vested in the non-elected Commission members, will the Prime Minister give the House today a categorical assurance that if the conference moves to add to or change the treaty of Rome she will give this nation the opportunity by referendum to say whether it will go on that course?

We shall receive the report of the Foreign Ministers at the next meeting in Dublin in June when doubtless they will give a number of proposals about the way forward. I believe that an intergovernmental conference will then be set up because most people want it and that could be done by a simple majority vote. We shall have our own proposals about making institutions work better. We are very much aware of the enormous powers that are vested in the non-elected Commission. We do not believe that those powers should be increased. There would, of course, be a tremendous attempt to increase them under monetary union and economic union, and that is where the main battles will come. Everything, fortunately, will have to come back to this House for approval. One remembers that the whole time when one is negotiating and believes that one has the feel of this House that it does not wish to yield up any more of its sovereignty than it has already.

Although the communiqué rightly welcomes the unification of Germany under a European roof, is not it a pity that the communiqué was not similarly forthcoming about the now independent countries of eastern Europe? Would not it be a good thing if they, too, were brought under a European roof? Is not it a fact that the whole priorities of the Community are distorted and that the achievement of a wider Europe should be the first and central aim? Would not an enlarged Europe be a far more effective counterweight to over-arching German economic power than these half-baked proposals for political and monetary union in western Europe?

The right hon. Gentleman knows that I share his view about the proposals on monetary and economic union, and the House made its views clear in a debate. With regard to what I call the wider Europe, I am very conscious—and I made a speech about it—that Europe and European civilisation were created long before the treaty of Rome and the European Community. I am, therefore, very much aware that eastern Europe is also a part of Europe.

I do not think that eastern Europe could come under the European roof straight away. East Germany is an
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exceptional case, because it is being incorporated into Germany. It is lucky to be able to plug straight into a system of law, a market economy, a whole banking system, a financial system and a system of company law, whereas it is a long time since the other countries in eastern Europe knew all the structure of a market economy and they could not come in without having gone through the process of getting to that structure and full democracy. That is why we have taken the present route with them. First, we are creating a trade agreement—and many trade agreements have been concluded, as the right hon. Gentleman knows—and, secondly, we are creating special association agreements with them which will have certain common features and some clauses tailored to the particular circumstances. Some of us will think beyond that. We shall think of full membership and believe that that is the right and better way for Europe to go. That could not be done before they had a proper democracy and a market economy.

Will my right hon. Friend accept that she spoke for the people of Britain when she insisted that the meaning of European unity be spelt out in detail? Surely it is of the essence that the future position of our sovereign, of our national government and indeed of these historic Houses of Parliament should be clarified and accepted as essential realities in any move towards a wider European unity.

I am grateful to my hon. Friend. I think that what one has noticed over the past 10 years is that the rhetoric and the practice often vary very much in countries in the European Community. We must define our terms, or we shall have artificial debates and arouse needless fears. [Interruption.] No, I am the person who does the analysis. I entirely agree with what my hon. Friend says.

Did I hear correctly when I heard the Prime Minister say that defence was among the matters discussed? Surely that is not normally a matter for the EEC. I should find it even more surprising if the Taoiseach, who is the President and whose country is neutral and deliberately has nothing to do with NATO—and that is its business—chaired a meeting at which defence was discussed.

We discussed the importance of East Germany when incorporated into a unified Germany, with the unified Germany as a whole being in NATO. We did not, of course, go into detail, and we could not possibly have done so. France is not militarily integrated into NATO, but is every bit as concerned as the rest of us t hat a unified Germany should be in NATO. As the right hon. Gentleman pointed out, the Taoiseach is neutral.

I again refer to what Chancellor Kohl and President Mitterrand said in their letter to the Community about political union: they suggested that one of the things that should be discussed was security. One pointed out that we were not the organisation that was the decisive organisation on defence matters, and I did not see how that could possibly be a definition of political unity.

My right hon. Friend has rightly expressed herself cautious about extending the powers of the Commission, which is a non-elected body. In any future discusson of political plans for the European Community, will she be wary of
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increasing the powers of the European Parliament in relation to finance? Over the years, the Parliament unfortunately seems to have been more interested in increasing public expenditure in the Community—often in areas that overlap public expenditure in individual member states—than in protecting the interests of taxpayers in Britain and in the other member states.

I agree with my right hon. Friend. We should be wary of further increasing the powers of the European Parliament, particularly over finance. The Parliament often wants to spend more, but the responsibility for raising the money lies elsewhere. I know that those powers have been increased both in the lifetime of the previous Labour Government and during the lifetime of this Government. I agree with my hon. Friend: I think that we have gone far enough.

Is the Prime Minister aware that, following the historic events of the past 12 months, it is quite proper that we should be having an open debate about the future of Europe but that the debate is not between nationalists and federalists but among a much wider range of people than that? Many of them, like me, would like to see a wider Europe, with nations of different traditions harmonising by consent and cooperating politically and economically without the domination of a central body. That view must be allowed to appear upon the agenda. Those who have rejected Gospan, which is not elected, will similarly reject the Commission, which is not elected or the Bundesbank, which is not elected. I hope that the Prime Minister will agree that before the June meeting the House can discuss the matter fully.

I have one further question, about the role of the House of Commons. As all laws emanating from the Council of Ministers—a legislative body—are made in secret by British Ministers using the Crown prerogative of treaty making, the House of Commons has lost all its powers, and accountability has simply become a vote of confidence in the Government of the day. It is not just European political union but the present arrangements and the 1992 arrangements that have reduced the House to municipal impotence. We are spectators of what is decided by Ministers in our name, without any authority, either in advance or afterwards, for the decisions that they have reached. Can that also be discussed?

As the right hon. Gentleman knows, when those draft directives are being negotiated, the negotiations are long and detailed. The right hon. Gentleman is right in that the Commission has the only right of initiation of draft directives. Draft directives may be withdrawn and others introduced. Separate countries cannot amend such directives. It might take four, five, six or even seven years for Ministers to approve a draft directive because, as a result of that directive being taken back and changed, it is very different. Where it is vital, such directives must be agreed by unanimity, on other occasions by majority. We would propose that the Commission should not have the only power of initiation. Ministers should be able to amend the draft directives.

The more important point raised by the right hon. Member related to the Community's wider aspects. It was started as the European Economic Community and we
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had to give up all powers directly over our own agriculture and that is now negotiated in the Community and a similar process applies to trade. Therefore, we cannot appear at the Uruguay round as a separate country. We negotiate through the European Community and the Community has an economic character in which it must have fair competition and try to get rid of heavy subsidies. We cannot discard that, because that is fundamental to the Community.

I would disagree with the suggestion made by the right hon. Member that we should widen the debate. I would have a different solution from that. The Community is the place in which we negotiate on economic matters and perhaps on political matters, because we have political co-operation, but that must be considered. We negotiate defence in NATO, but that is still not enough. That is where the importance of the Helsinki accords and the conference on security and co-operation in Europe come in. That was signed by 35 nations on both sides of the political divide in Europe and that is why many of us want that conference to meet more often, possibly with Foreign Ministers meeting twice a year, so that we achieve that essential discussion between nations of different political characters. We can then see more and discuss more of the problems and perhaps prevent some of them from arising and have a greater understanding of them. However, that is a separate task for the CSCE framework and we hope to meet later this year to consider that further.

Did the Council of Ministers agree that it was the duty of every member state at all times and in all circumstances to do its utmost to cleanse Europe of the evil of terrorism? Did my right hon. Friend make it clear to the President of the Council that, as a result of the recent events and decisions of the Supreme Court in Dublin, many hon. Members consider that the Republic has become a safe haven for terrorists and that that is wholly unacceptable to the House?

As my hon. Friend knows, I have raised that matter before and have been very forthright about it—just as forthright as my hon. Friend is now. A rule of law matters very much to us and part of that is apprehending those who are suspected of crimes and, if they are guilty, seeing that they are convicted as guilty before properly appointed courts and that the sentence is carried out.

We have been very concerned about terrorism and with the greater freedom of movement of people, particularly across the mainland of Europe and the removal of some internal borders. We have not yet made sufficient provision for catching terrorists or people dealing in drugs or other articles who cross borders. We have raised that matter on many occasions. We are in a special position because we are an island and we can exercise such controls at our ports and airports. However, we do not have a satisfactory way of achieving that more generally.

I welcome German unification. However, given that in international law East Germany as the GDR is a separate state, on what legal basis will East Germany be incorporated into the Community? Will it require the unanimity of the current 12 member states?

The hon. Gentleman has used the correct word. It will not be annexed and therefore we do
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not have a separate treaty negotiation as we would have if we were taking on a wholly different country. It will come in under article 23 when the GDR becomes incorporated into Germany. Therefore, we are negotiating in a completely different way. We do not have to have unanimity under each facet of negotiation, for example, in agriculture, fisheries, trade, competition and environment, but it will go under the ordinary Community law.

In the meantime, we are aware that many things need to be negotiated, and they are being negotiated in a pre-unification way because the GDR has totally different kinds of farming from that in Europe. It has enormous co-operative farms. Also, it produces a great deal of wheat, barley and potatoes, and of course some of those could come into a Community that already has a surplus and is getting rid of its surplus, and that must be negotiated. It has a fishing fleet twice the size of that of the Federal Republic of Germany and very few waters, and that will have to be negotiated and very carefully indeed. Then, of course, it has many subsidies and a Communist economy at the moment, and we really cannot have goods coming across and undercutting us. All those matters, therefore, are for the Commission to be negotiating at the moment.

I thank my right hon. Friend the Prime Minister for robustly defending the interests of this country at the European talks, and particularly for committing this country to the thoroughgoing discussions on European political, economic and monetary union, which, of course, in reality will enhance the sovereignty of this country. Does she agree that there is no reason on earth why the proposals and procedures to be adopted should not enhance the sovereignty of this national Parliament, particularly in its developing work with the European Parliament, itself exercising accountability over the European Commission?

I am aware of the argument that my hon. Friend uses. It is used frequently, particularly by some of the smaller members of the Community, who say that, because they are part of a bigger organisation, they have influence where they would never have had it before. I think that there are distinct limits as to how much further that view can be taken. For example, we cannot, as I said, negotiate as a separate nation in the Uruguay round.

My hon. Friend says that it does not matter. I should not say that it enhanced our sovereignty—not in any way; it may pool our sovereignty. It could diminish our influence if we were only one country in 12. On the whole, we make our views felt and sometimes we get the right answer because we have the right proposals. I know that that will continue to be so.

Is the Prime Minister aware that what she said about parliamentary democracy and the powers of this House will receive some assent here and outside, but do not two questions follow? First, is not it high time that the House agreed to the unanimous four-year-old request of the Select Committee on European Legislation that its powers be slightly extended so that it may give full information to the House about matters relating to the EEC and its legislation? Secondly, whatever may have happened in the past, is it now appropriate that all the documents that will be put before the future Council of Ministers, future European
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Councils and, indeed, intergovernmental conferences be placed before the House for debate on a substantive motion before Governments commit themselves? If our friends and neighbours in Europe are to take seriously what the Prime Minister and others are saying about parliamentary democracy, surely the answer to both questions must be yes.

The hon. Gentleman is aware of my general view that I believe that he and others who have taken a particular interest—indeed, the whole House—should have as much information as possible, first, because of the traditions of the House and, secondly, because some of the decisions that we shall take in the next five years will have a fundamental effect on the future of our children. We wish to do the best for them, but we think that the best is done by a combination of belonging to the European Community and being influential in that, but also of being a very proud nation state, and one of 12 proud nation states. We think that it is better to co-operate in that way than trying to merge more of our sovereignty, as we have done in the past. I shall do my best to look into this matter and see that as much information as possible comes before the House, because that can only enhance the quality of the debate and help Ministers when they are negotiating.

Will my right hon. Friend accept congratulations for injecting such a welcome note of British realism into the proceedings arid for asking just the right kind of searching questions on some of the dreams of European political union? Was she surprised this afternoon when the Leader of the Opposition, on the basis of minimal information, apparently committed himself and some of his party to going along with the Franco-German theory of political union, a theory which can only result in a massive shift of power away from this House and contrary to the wishes of the British people?

In relation to the important issue of the unification of Germany, may I ask the right hon. Lady to confirm that, when she refers to article 23, she is referring to article 23 of the basic law of the Federal Republic's constitution and that unification will take place under that law? Will she confirm that the proposal is that the five regional areas of East Germany will merely be added to the 11 laender of West Germany and that we shall be faced with a 16-laender Federal Republic of Germany becoming part of the EEC? Is the Prime Minister aware that I am 110 per cent. in favour of that new state being a member of NATO?

Is the right hon. Lady aware that the achievement of the wider European family—if, as we hope, the new Germany becomes a member of NATO—will require confidence-building measures, bearing in mind the attitude of the Soviet Union? Does she accept that if that were not to happen there could be tensions in Europe that, to say the least, would be difficult to handle? Is she convinced. in view of all of that, that sooner rather than later we should have a major debate about the direction in which Europe is travelling?

I am grateful to the hon. Gentleman for making the first point. The article 23 to which I referred is article 23 of the constitution of the Federal Republic of Germany, which is so well known that I did not identify it. He described the procedure as I understand it—that East Germany will divide into five laender, that they will be annexed and that they will become one unitary German state.

The hon. Gentleman went on to speak of the wider European fabric, and perhaps one can divide it into three. First, there are the immediate east European countries that were part of the Warsaw pact and which now wish to have association agreements with us, so we shall get closer that way, and they may eventually want to join. Secondly, there are the six EFTA countries with which we are renegotiating a new agreement—again, a wider grouping, and some of them may wish to join. Austria has already applied, and that is another neutral country.

I do not think we can go beyond that, except within the existing framework. When considering the future, I have always thought that we were fortunate in having those three frameworks. We have the European Community, we have NATO for our defence, which locks us in, both sides of the Atlantic—the defence of freedom is both sides of the Atlantic; it locks us into the United States and the United States into us—and we are able to use the Helsinki accords to go across the divide.

There will obviously be much more difficulty in getting a free market economy in eastern European countries, and particularly in the Soviet Union, and the greater the discussions we have with them the better. The framework exists, and I believe that it would be best to use that framework.

Is my right hon. Friend aware that her statement this afternoon and the questions that have followed represent one of the most important events in the life of this Parliament? Is she aware that we are dealing with the fundamentals of our national life, not only for ourselves but for our children and our children's children? Is she further aware that she stands in the line of great Prime Ministers of this country who have stood up for Britain and have had the support of the vast mass of the people? We are fortunate to have my right hon. Friend, rather than the inexperienced Leader of the Opposition representing us abroad.

I am grateful to my hon. Friend. It is extremely important that we stay in NATO and that we keep the United States in Europe to ensure both our freedom and our rule of law. It is important that we retain our national identity and our ancient traditions and heritage, which have done so much for the world. It is also important that we play a part in the development of Europe. However, we must remember that the civilisation of Europe, which is now seen the world over, was built up over centuries and that it belongs to more countries than just to the 12. Indeed, it was built up before Europe had any central authority, partly because of the variety within Europe and because there was always another place to go for those who sought more freedom than they found in any particular state.

Therefore, I agree with my hon. Friend and with Opposition Members who have said that this was one of the most important summits. That is why one finds it a
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tremendously responsible and exciting job. We are shaping the future for a long time ahead and we shall do so carefully, with full respect for the traditions of this House.

If, contrary to the assurances that were given in the referendum, we were to have economic, monetary and now political union, and if, as Jacques Delors suggested, 80 per cent. of our policy was decided in Brussels and taken from this House, does the Prime Minister have any proposals to reduce the salaries of Members of Parliament by 80 per cent? As the Palace of Westminster would become rather redundant, does the Prime Minister have any plans to privatise it and to link it to the Greater London council building and turn it into a hotel, or perhaps it could be turned into a museum with a variety of artefacts that would remind tourists of the old days when Britain was a self-governing parliamentary democracy?

I realise that the hon. Gentleman worked hard at that supplementary question, but he is slightly out of tune with the spirit of the House today. We are all working anxiously for the future of Europe and the wider world and to extend freedom and the rule of law ever wider, along with wider prosperity. However, the hon. Gentleman has touched on something fundamental. There will be fierce debates about economic and monetary union. Those debates will be fierce because from what we have seen of Delors stages 2 and 3, which have been rather general, we do not like or accept the idea of going to a single currency or locked currencies or the idea of a central bank, which would take powers away from this House, as was described in the Delors report. We have already gone some distance because it has been made clear that that organisation would not have as many powers over the general budgetary decisions of this House as Delors set out. That issue will be hotly fought because a number of others want to go much further than we do.

The hon. Member for Newham, South (Mr. Spearing), who earlier spoke about the need for more information, was right to say that we shall need as much information as possible. That issue will be much more fiercely fought at the moment than that of political union, because political union is much further behind and we have stopped it meaning things that we did not want it to mean.

May I warmly congratulate my right hon. Friend both on her statement this afternoon and on all the ways in which she works for the British interest both in Europe and elsewhere in the world? In her discussions on the exchange rate mechanism, was she aware of the growing unease of many of the member countries about a fixed exchange rate mechanism covering such a broad spectrum when there is so much uncertainty about German monetary union? Is there really a good case for returning to fixed exchange rates after this country's unhappy experience from 1949 to the early 1970s? Therefore, are not we wise in being extremely cautious before we hand over our money supply to a third party?

My hon. Friend has put his finger on an important point. It is one thing to join an exchange rate mechanism with certain quite wide margins within which the currency can fluctuate, as has been necessary. We should consider Spain's experience since joining the exchange rate mechanism because that has not been an
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easy option for Spain. It would be much more unwise to go to locked exchange rates. Some of us remember the times of fixed exchange rates under the Bretton Woods system when we used to hear in the House details of public expenditure cuts, of how we had to let go a great deal of our reserves, and of high interest rates—all at once. Those problems arose from the fixed Bretton Woods exchange rate system. It was broken, and we should be wary of returning to such a rigid system.

In the past, the right hon. Lady has expressed concern about the consequences of German unification. In the circumstances, does she think that it is wise to go on harping—as she does—about national independence, national sovereignty and national identity? Is there not something to recommend the approach of President Mitterrand and Chancellor Kohl, who believe in a common approach that would bind a united Germany more closely to the Community?

Again, if I may say so, those are merely words. The Federal Republic is a member, and was a founder member, of the Community. Britain, too, is a member of the Community. We are all bound by the same rules, and we must all agree if we wish to change them. Why should being in the Community bind Germany more firmly that the rest of us? Again, it is a phrase which people are using rather easily.

Naturally, Germany will probably be one of the dominant countries in the Community because she is far larger and very rich. The rest of us would be right to have regard to that. That is one reason why people feel that we should extend the Community. If there is one dominant member in the Community, the other members must have regard to their national identity and to their traditions. Britain's parliamentary traditions go back further than those of any other Community member. Therefore, we have a specific balancing role to play—as we have always had—in Europe.

Does my right hon. Friend agree that mutual self-interest is the best binding agent for the EEC, and that political union could be divisive? We talk about German unity as if it was a matter of fact, but does the Soviet Union still retain some residual powers ahead of a peace treaty?

I agree with my hon. Friend. We are in the Community because we believe that membership is in our interests and because we believe that we should co-operate on those things. That will give our children more scope and opportunities than we ever had. That is a good thing.

The Berlin four powers and the two Germanies have yet to decide how to wind up the present arrangements in Berlin. We took the view that we should be wary to ensure that that forum was not used to discuss wider defence matters but should be confined to that purpose. Any residual business to be completed will have regard to our duties—as an old occupying power—towards East Germany. Britain will do that with the greatest possible understanding. The Soviet Union is a member of the Berlin four and we will have to negotiate with it on the question of the peace treaty and German unification, even though many of us think that that is not necessary. However, there is a call for such a settlement, especially one that has regard to the borders of Poland. My hon.
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Friend knows that both Germanies have now undertaken to honour the Oder-Neisse line. They say that as separate states. When they are unified they will have a treaty to that effect.

The right hon. Lady must be aware that I absolutely oppose and detest everything that she has done in relation to this country. The right hon. Lady is totally wrong when it comes to our internal situation here, but she is not wrong on everything; on odd occasions she can be right. She must also be aware that I used to be a staunch supporter of this country entering the Common Market until I realised the effect that it would have on ordinary people. It was that realisation which determined me to resign as a Labour Minister, because I believed that what the Government were doing at the time was wrong.

I still believe that the ordinary people of this country are not getting a good deal from the Common Market and that it is, therefore, right to ask the questions that the right hon. Lady has asked in regard to political union and what it means, and I believe that my right hon. and hon. Friends on the Opposition Front Bench are being too easily conned on these questions of the European Economic Community.

I believe in a socialist Europe. I want a united socialist Europe. I do not want the type of system which is being proposed at present. So I suggest that we need to be much more serious about this question—at present, some of our people are only too keen to rush into it.

While I disagree, therefore, with everything that the right hon. Lady says in relation to this country—[Laughter.] It is no laughing matter; it concerns the future of our people, and our people mean a lot to me. They may not mean a lot to some people, but I left a Government job because of them. While I disagree with her on everything else, she is right to ask the questions that she is asking.

I respect the hon. Gentleman as a sparring partner in domestic politics, and I enjoy sparring with him. I disagree with him and I am sorry that he does not accept that this country has had much greater prosperity during the past 10 or 11 years and a much higher international reputation.

With regard to the European Community, the future generation will take a different view from those of us who have lived through different experiences, but we will share this with them: they will have greater opportunities because of the European Economic Community, because of the way in which people can set up businesses and practise their professions in Europe and the way in which they can travel in Europe. It will be of great advantage to them. I hope that they will take that opportunity and perhaps be better at languages than we have been in the past. It is our job to create a better future. We do not disagree about that.

The hon. Gentleman said that he wanted a united socialist Europe. I do not. Eastern Europe is trying to get away from centralised socialism. The thing that always puzzles me about the hon. Gentleman is that he demands centralised socialism while being himself a great individualist.

Is my right hon. Friend aware that most people in this country arid throughout Europe will wholly support her in seeking to define more precisely and in practical terms what
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European union means? On the exchange rate mechanism, will she acknowledge that many people feel that our interest rates in this country are much too high—almost double those in the European Community—because we rely solely on interest rates rather than on the co-operative mechanisms of the European monetary system? If, for example, we were to join the exchange rate mechanism tomorrow, would our interest rates be higher or lower? I suggest to my right hon. Friend they would be lower, to the benefit of our people.

We should all define our terms. I am always amazed that I have such difficulty in getting that across to some of my European colleagues.

With regard to the advantages or otherwise of going into the exchange rate mechanism, Spain may well have had some of the hopes expressed by my hon. Friend, but her interest rate has not moved at all—it is still high—her inflation rate has not moved and her trade deficit has not moved. One must be wary of assuming that by going into the exchange rate mechanism one has an easier ride or one's interest rate will suddenly come down. One should look at the experience of others who have joined it.

On Hungary, will the Prime Minister ask her senior Ministers to study the report of the Government adviser, Paul Hare, professor of business studies at Heriot-Watt university in Edinburgh, a Hungarian-speaker, to the effect that in the past few weeks Hungarians have been anxious about becoming over dependent on capital from Dusseldorf and Frankfurt, want greater British participation and feel that the Department of Trade and Industry could do rather more than it has done? Can this be studied?

The hon. Gentleman is right; some east European countries are a little wary of the dominance of German capital going into their countries and are very anxious that as much capital as possible from this country and others should also go into their countries so that they have a variety of investment. One must obviously choose investment very carefully and make it only in those things that we are good at, but we think that our capital could do best in Hungary, Poland and Czechoslovakia. I will have a look at that report.

Is my right hon. Friend aware that it must be obvious from today's exchanges in the House that her critical but none the less constructive approach to these big questions in the Community is broadly supported in the House? Does she equally accept, however, that the way in which the Community has developed in recent years and is continuing to develop suggests that it will be the private sector which will lead many of these developments and that it will be for national Governments and Community legal bodies to follow and ensure that Community law is adequately enforced?

In that context, does my right hon. Friend realise that her proposals for increasing the enforcement powers of the European Commission and for strengthening the European Court will point the way ahead in the Community?

I agree with my hon. Friend that it is the private sector which will lead the way, certainly in
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some of the matters connected with eastern Europe. The limiting factor is that when they go into eastern European countries they find no company law, often no contract law, often no credit law and sometimes no banking system, so some companies are naturally a little apprehensive. All those things automatically go to East Germany from West Germany, of course.

I agree with my hon. Friend that this has been a very constructive discussion. We are all conscious of the importance of the decisions that we make for the future and anxious for them to be right.

Is the Prime Minister aware that, as one who believes that West Germany is getting too big for its jackboots, I cannot accept her rhetoric about the future of Britain, inside or outside the Common Market? We heard all the rhetoric before from the Prime Minister when she threatened to bring barrow-loads of money back from the Common Market in respect of the rebates. That is why invisibles are now in deficit—because of the massive amount of money that we are having to hand over to the Common Market. That is why every family in Britain is forking out £16 a week for the common agricultural policy.

We heard the rhetoric before about the single European market and how the right hon. Lady was going to stand up for Britain. What happened? She guillotined the Common Market legislation and dragged her troops through the Lobbies to get Britain into the single market. I do not believe the rhetoric.

If we had left them where the Labour Government to which he was extremely hostile had left them, we should by now have paid £7.5 billion more to the Community than we have. It is because of the actions of this Government that we have paid £7.5 billion less. So the British people are £7.5 billion better off under a Conservative Government than they were under Labour.

My right hon. Friend will recollect that in the 1976 referendum Britain voted by a majority for economic union in Europe. May I reassure her that her reservations on political union are far more in tune with the views of the vast majority of people in this country than many of her detractors and critics would seem to suggest?

Does my right hon. Friend agree that those who describe the genuine fears of people about political union and its effects on national sovereignty and this Parliament as "piffle" fundamentally misunderstand the views of the British people? Furthermore, the British people would rather be represented in the European Community by a bulldog than by a poodle.

Does my right hon. Friend agree that in practical terms we have shown the way in Europe and that there are fewer cases outstanding against us than against any other major European country? We have led in a number of initiatives, including the recent one on reducing air fares which would have been of real practical value to European citizens. Finally, it is not Britain that is dragging its feet in extraditing terrorists, whether to Dublin, Brussels or elsewhere.

I am grateful to my hon. Friend and I entirely agree that in practical terms we lead the way in implementing Community legislation. I think that that is generally recognised.

With regard to air fares, it was ironic that during a week when others were calling for political union France rejected our application for cutting air fares to Paris and Germany said that it was going to slap an extra tax in July on all lorries that went through German territory.

In the final statement from Dublin my right hon. Friend agreed that further decisive steps should be taken towards European unity. That seems like a cheque that other people might want to cash. Can she define which decisive steps she would agree to?

No. I think that if my hon. Friend looks at the statement, first we said that before we would agree to setting up an inter-governmental conference, which would have to be added to the treaty, we must analyse what is meant by political union—and there are several different models. Most people would want to co-operate more closely, but there would be some doubt about whether we needed a new treaty. If we do, we have a number of proposals to put forward that will make the existing institutions work much better. That would seem constructive and preferable to what we have now.

With regard to economic and monetary union, as my hon. Friend knows, we agree fully with what is called Delors stage 1—the completion of the single market. We are very wary indeed about Delors stage 2, and absolutely against stage 3, on which we shall also put up other proposals of our own. But I think that that matter will be contested more vigorously than anything else before us now.

Is it not clear from the brief debate this afternoon that the whole House is behind my right hon. Friend's stand in Europe, and that those who have criticised her position in recent months should be made to eat their words? Is it not also clear that, while some continue to promote a certain political ideology, she has continued to pursue practical solutions? May I comment on just two of them?

It is crucial that while people are moving around more freely in a freer Europe we must maintain our borders against drug traffickers and terrorists. I warmly welcome the stand that my right hon. Friend took in Dublin to promote the Drug Trafficking Offences Act 1986, which was a British initiative. It was clear from the evidence that we took in the Select
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Committee on Home Affairs that this should be pursued, and I am sure that my right hon. Friend will bring all her formidable powers to bear to ensure that that is done.

I am grateful. We have got it about right and I think that people are with us in the approach that we are taking. I entirely agree that we do not yet have the issue of borders clear. Britain has good, clear borders because we are an island, but we must remember that other people can get in a car and travel from one side of Europe to the other without going through many border checks. We do not yet have sufficient checks to apprehend drug dealers, criminals, or those who launder money, and such checks must be put in place. When the unification of Germany takes place, it is important that there be effective controls on the East German border with eastern Europe, because the less effective such borders checks are across Europe, the more important they are at the entrance at any point to Europe, whether by land or through an airport or seaport.

Did the Council of Ministers consider the forthcoming elections in Romania? Is my right hon. Friend aware of the widespread concern that European aid to that country has effectively been hijacked by the National Salvation Front, which is basically a group of former failed communists who, are taking the political credit for European generosity?

No, we did not discuss Romania. We did rather well to discuss what we did in the time that we had. But we are very much aware of the previous credentials of some members of the National Salvation Front, and of the point that my hon. Friend makes.

Did my right hon. Friend discuss the social charter at the European Council? We voted one to 11 against that charter, but many people, particularly in employment agencies that provide temporary staff, are worried that, despite our voting against, regulations and directives will come through on majority voting which will make their businesses unviable. Will she comment on that?

We did not discuss the social charter at this meeting, but my hon. Friend is right to think that, although we did not agree to, and therefore knocked out that social charter, separate directives will come. They will be looked at then, not on the basis of rhetoric but on that of what they propose. We may have far more allies with us on that than we should have had on the general social charter which, had we approved it, would have extended the powers of the Commission beyond some of the treaty powers. That is why we were right not to go along with it. In any case, I believe that our social policy is far better than that represented in the social charter.

Is my right hon. Friend aware that many of the personal attacks made on her before she went to Dublin will rebound on those who made them? Does she also recognise that her performance today at the Dispatch Box was an experience that no other European Prime Minister has to face, and that her answers in depth were classics that will long be remembered? Does she further recognise that, as Conservatives and Unionists, we know what union means? We expect others to spell out exactly what they mean by it.

Is my right hon. Friend aware that, in the words of the late Matt Monro, "She's our kind of girl"? Does she realise that during her impressive performance at the Dispatch Box today she has clearly demonstrated to the British people and to Her Majesty the Queen that she is in Europe fighting for Great Britain? Does she also realise that it is quite impossible to talk about political union of Europe unless the French and Germans are prepared to define exactly what they mean by it? There is no doubt that our Prime Minister has got it right, and I hope that she has gained the admiration of the nation this afternoon.